Optimal Nonlinear Taxation of Income and Education Expenditures
Despite using a variety of models and assumptions, the existing literature has overwhelmingly concluded that education policy should be regressive. In this paper, we examine a two-period model in which the government may impose non- linear taxes on both labour income and education expenditures. Individuals un- dertake education in the OÌˆrst period to increase their second-period wages. Our main result is that optimal education policy in our model is progressive. SpeciOÌˆ- cally, if the government can commit, it is optimal for high-skill individuals to face a zero marginal tax rate on their education expenditures, while that for low-skill individuals is negative. If the government cannot commit, the optimal marginal tax rate on education expenditures by high-skill individuals is positive, while that for low-skill individuals remains negative.
|Date of creation:||Aug 2010|
|Date of revision:||Aug 2010|
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- Jang‐Ting Guo & Alan Krause, 2011.
"Optimal Nonlinear Income Taxation with Habit Formation,"
Journal of Public Economic Theory,
Association for Public Economic Theory, vol. 13(3), pages 463-480, 06.
- Jang-Ting Guo & Alan Krause, 2008. "Optimal Nonlinear Income Taxation with Habit Formation," Working Papers 200810, University of California at Riverside, Department of Economics, revised Aug 2008.
- Gianni de Fraja, 2002. "The Design of Optimal Education Policies," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 437-466.